Tuesday, September 22, 2015

EWZ Analysis

Update 10/15/2015: A week after entry EWZ began a steady rise, contrary to my position, that peaked Oct. 9. A subsequent sharp decline over two days mitigated the loss but was insufficient to bring the position back to profitability. I exited the day prior to the end of trading on the options.

EWZ rose by 10.3% over 23 days, or a +163% annual rate. The options produced a 59.4% loss on debit for a -943% annual rate.

The exchange-traded fund that tracks the Brazilian stock market, the iShares MSCI Brazil Capped Index Fund (EWZ), closed below its 20-day price channel on Monday, sending a bear signal with high historical odds of success, suggesting a directional trade.

[Economy of Brazil in Wikipedia]


I shall use the OCT series of options, which trades for the last time 24 days hence, on  Oct. 16.


EWZ has completed six bear signals in the past year. Four of them were successful, yielding on average 9.4% over 53 days. The two unsuccessful signals lost 3.2% over 16 days, on average.

The bear signal success rate in 66.7%.


Brazilian stocks began their present sharp decline a year ago as yet another leg in a downward trajectory that began in 2011.

Click on chart to enlarge.
EWZ at 11:24 a.m. New York time, 90 days 4-hour bars
Implied volatility stands at 52.3%, which is 2.3 times the VIX, a measure of volatility of the S&P 500 index. EWZ’s volatility stands in the 59th percentile of its annual range.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

Bear call spread, short the $22 calls and long the $25 calls,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money


The premium is $0.71, which is 24% of the width of the position’s wing. The stock at the time of purchase was priced at $21.54.

The risk/reward ratio is 3.2:1.

Decision for My Account

I've opened a position in EWZ as described above.

-- Tim Bovee, Portland, Oregon, Sept. 22, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.

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